Corporate Policing: The Evolution of Whistleblowing

Whistleblowing has traditionally involved insider reports of corporate wrongdoing by employees of a business. A recent whistleblower lawsuit may signal the start of a new era in the False Claims Act as businesses begin to turn in their unethical competition to the U.S. Government in order to preserve fair competition in the marketplace (and earn a bounty for their help).

This is something that we have discussed internally here at McEldrew Young but came to life recently in a spectacular fashion. In mid-August, the United States announced a whistleblower award of $38.7 million to Sanofi-Aventis, a global life sciences company, from the $465 million settlement by Mylan. The settlement resolved a government investigation into allegations made by Sanofi-Aventis that Mylan misclassified the EpiPen as a generic drug to avoid paying Medicaid rebates.

The announcement was unusual in that the United States paid Sanofi, far from the typical whistleblower. It has had at least two other run-ins with the False Claims Act, and Sanofi paid out nearly $130 million as a result. But there is no prohibition on a corporation turning in its competitor via the False Claims Act – even if it has been a defendant previously in a different action.

Sanofi-Aventis no doubt learned that Mylan was breaking the law because it also had a product in the epinephrine injection field: the Auvi-Q. It is the main competitor to EpiPen, and reportedly not nearly as popular.

Based on the date of the False Claims Act complaint, it appears that Sanofi filed the whistleblower lawsuit before the topic hit the media last year. The price of the EpiPen became national news last August and September due to the alarming price hikes that would become the subject of a congressional investigation.

A Sanofi spokeswoman told CNBC that the whistleblower award would be split (in an unstated fashion) between itself and another whistleblower, Ven-A-Care, a pharmacy that previously made hundreds of millions of dollars turning in pharmaceutical companies for best price violations.

The United States has long provided for private enforcement of the nation’s antitrust laws through a private cause of action to businesses injured by the violation. A prevailing plaintiff can earn treble damages plus a reasonable attorney’s fee for a successful lawsuit. The False Claims Act also provides for treble damages, but hasn’t typically been used by corporations to turn in their competition when they are engaged in misconduct. Times may be changing.

Employees will obviously remain an important source of information about corporate wrongdoing. But business competitors typically also have a great deal of information about what their competition is doing. As well as if they are doing it legally or illegally. They are also not subject to the same concerns about retaliation (if they are conducting their business legally).

Can you imagine how quickly fraud in healthcare and investment banking would be cleaned up if other businesses took the same stand as Sanofi and turned in their competitors when they break the law?